Hendrik du Toit: ‘We’re at a tipping point, akin to the industrial revolution’

Hot on the heels of a recent rebrand, the de-merger from Investec Asset Management and some impressive growth figures, Ninety One’s chief executive officer is turning his hand to the launch of the Glasgow Financial Alliance for Net Zero (GFANZ) Africa Network, as a founding advisory board member. Where does he stand on the recent ESG fallout, what can the Africa Network achieve, and why will environmental pollution eventually catch up with those that caused it?

Net Zero Investor: Are you simply a long-term manager of risk or do asset managers have a responsibility to invest for net zero?

Hendrik du Toit: First and foremost, we run other people’s money. You can talk about the $170bn (approx.) that Ninety One manages but that capital belongs to our clients. So this is why I think BlackRock’s line [in its recent letter] was spot on. We manage money in accordance with the objectives of our clients.

We have our own view of life, and we think the long-term impact of climate change will degrade income streams across the board and will create huge liabilities which eventually will be extracted by society; by 2050 there are going to be an awful lot of lawsuits and maybe reparations. Asset managers need to be pricing in these risks now and guiding their clients appropriately.

We also believe the global economy has to change – driven by climate requirements and technological advances – and we think we’re at a tipping point, akin to the industrial revolution. The green economy is going to be something like the size of the US economy, and our job is also to pick the winners on behalf of clients that are going to drive this change. Now if some clients want to go further, faster and align more capital to impacting the transition, then we’re here to help and we’re developing our skills as a business to understand and communicate the risks involved with sustainability and impact.

NZI: So if a prospective client comes to you and asks you to manage money as best you can, investing in fossil fuel companies for the next 15 years, do you have a responsibility to say ‘that isn’t money we can manage’?

HdT: No. Not unless it’s illegal. It’s our responsibility to say to the client that there may be an evolution in the economy that renders this obsolete. If we have no discretion and it’s within the law, then we will do it, but if clients mandate us to have discretion then we’re going to say we would prefer to invest in companies with a credible transition plan. Our argument, similar to GFANZ, is that you should go where the emissions are in order to reduce the emissions.

Of course, we have our own company transition plan to be net zero by 2050 across Scopes 1, 2 and 3. To be net zero including Scope 3, that assumes the companies we invest in will transition themselves or run themselves down.

And corporately we’re arguing very strongly that we should live better, travel less, reduce plastics and work out of clean buildings, and so on. As an investor we argue that you need a credible net-zero framework. And as an advocate we’ll put time and resource into initiatives like GFANZ and the Africa Network.

We have a long-term plan which is to be net zero, but it is too simplistic to say that today we have either a “green choice” or a “brown choice” because that leads to the kind of chaos we’ve seen recently in the markets.

NZI: What role can the GFANZ Africa Network play?

HdT: We’re adding our weight as the biggest investor of third-party capital on the African continent, along with some very senior voices, to this initiative because there will be no transition to net zero if it’s just done in the rich world. The developed world has essentially exported its carbon emissions to the developing world, and we know that by 2050 the bulk of the world’s population and global GDP will reside in the developing world. The rich world has to work with the developing world, and it can’t say “we got rich on the emissions from the industrial revolution, now your kids can study by candlelight”.

This has to be a constructive discussion, and what GFANZ brings to the table is some financial clout, some experience and an understanding of how and where capital flows are needed.

It can’t be about excluding imports at the European border, because the African avocado farmer – or whoever it is – will find another buyer, probably in Asia. We need to work together to help build a sustainable trade network so that Africa has its own financial firepower. It can then drive its own transition.

NZI: COP’s perennial shortcoming is not getting the developed world to pick up the tab for historic emissions. There’s a cost to all this isn’t there? It’s not just about opportunity.

HdT: There is going to be a cost, but the GFANZ message and the SMI [Sustainable Markets Initiative] message is that we’re living in a world with enough capital. Just like food, there’s enough food; we just need to get it to the right place.

NZI: You’re a wealth redistributor…

HdT: No, I’m a wealth creator, but I believe, in this case, we have a common emergency and if we don’t find ways to retool the whole world, it will impact all of us. I’m seeing this through the risk lens: the value of the assets we own in the rich world will be degraded if we don’t tackle climate change.

Therefore it makes long-term sense – not the three-year horizon but long term – to invest in clean energy infrastructure across the world. I think investment managers, insurance companies, and asset owners understand this. The whole GFANZ concept is about encouraging government capital to flow to places where the private sector can then follow, and, at the moment, it’s governments that are the problem.

NZI: The next three years do matter, though. If we get the next three years wrong, it has a knock-on effect into the future. What needs to be done now?

HdT: Two things. Firstly, this just has to get back on governments’ agendas. This is much more important than inflation or even the conflict in Ukraine. This is about the long-term survival of mankind. Secondly, from the private sector point of view, we need to ensure that all substantial businesses develop sensible transition plans. And I think sources of capital will recognise the good plans and provide that extra investment now to get the companies to where they need to be.

All boards should be engaged in this, all shareholders and all capital suppliers, and I think there are encouraging signs. Three to five years ago people were box ticking – now it’s different. The business leaders I speak to are waking up to this, not least because of pressure from their own children, and there’s more of a mindset to grapple with the “how”, rather than the “whether”.

It’s important to recognise though that we can’t stop producing food today or stop heating this winter. People need to eat every day and they need to educate their children; demand for the basic needs in life isn’t going away. So we have to find ways to meet that demand while we transition towards a more sustainable future. That’s why I don’t see this through an ideological lens – you have to do something.

NZI: What needs to happen regarding carbon pricing and the cost of pollution?

HdT: We need to put a proper price on carbon. The voluntary and the official carbon markets have not yet met. Central banks and financial regulators need to worry about that. Once you have a price that works for everyone, from China to California, we can plan our projects and offset more effectively.

But if we can truly monetise natural capital and put it on balance sheets then we’ll start seeing the incentives we need.

Absolutely, there should be a cost for polluting the atmosphere. We in Britain export tonnes and tonnes of plastic to other places and there should be a cost to that beyond the minor payment these poorer countries receive for it. There is a permanent environmental cost that should be reflected in the financial cost.

And so that takes me back to the risk framework. Someone is eventually going to come after you if you’ve produced and dumped all this plastic, and the ability to calculate the cost and the damage is improving every day. A lot of our best brains now want to work in that area and they’re figuring out ways to charge this environmental damage back to the people who caused it. And that’s why investors like us have to factor in the long-term risks.